Posts Tagged → interestrates
Wednesday’s Wash
At 9:00 this morning al global markets are glued to the events in Athens with the vote on austerity is taking place; in the streets police firing huge amounts of tear gas to break up protesters. The vote has been completed and it passed. Greek citizens will pay a heavy price for its government and its country over-spending for years. As we have noted many times in this column once a positive vote on spending cuts would happen the US bond market would see selling as safety trades are taken off. The US rate markets have moved higher quickly as we noted previously they would likely do once Greece moved back from the cliff. Two days ago France got their banks to re-cast shorter term Greek debt to much longer payout terms, one necessary step along with austerity plans to keep Greece from defaulting. News out of Germany indicates it will also get their banks to follow France’s necessary action.
The bond and mortgage markets have turned bearish near term, breaking most bullish technical levels in the last 48 hours. From a technical perspective, as we have mentioned a multitude of time here, both the US equity and bond markets have been at extreme overbought (bonds) and oversold (equities). It was only a matter of time before markets would turn over. It usually takes some event to trigger the swift change in over-extended markets; the Greece vote, the poor bidding on this week’s Treasury auctions and comments from Jean Claude Trichet yesterday interpreted to imply the ECB will raise its base lending rates in July have combined to send interest rates higher.
Is this the end of the declining interest rate markets? It is too soon to make that call! Markets have to settle and turn back to basic economic fundamentals and calm down from the current volatility. What we can take away, when the 10 yr note trades below 3.00% it is on thin ice. Investors in US bond markets are increasingly likely to demand a higher rate of return to continue funding the US growing budget deficit as interest rates in Europe and China increase. The outlook for US economic growth also a question mark; the divide between bullish outlook and a less optimistic outlook is wide—-both views not well grounded.
Monday and yesterday Treasury auctioned $70B of notes in two auctions; both failed to meet expected demand. Today Treasury will auction $29B of 7 yr notes after rates have increased 20 basis points since the close last Friday, with higher rates will the 7 yr see better demand? If not expect more selling.
Already this morning markets have been very volatile; in the bond and mortgage markets prices have had a wide range. The 10 yr note yield spiked to 3.10% at 9:00, by 9:30 back to 3.06%; mortgage prices at 9:00 -9/32 (.28 bp), at 9:30 -3/32 (.09 bp). The three stock indexes equally volatile into the 9:30 open. Expect more trade volatility through the rest of the day.
Mortgage applications decreased 2.7% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending June 24, 2011. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.7% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 2.6% from the previous week. The seasonally adjusted Purchase Index decreased 3.0% from one week earlier. The unadjusted Purchase Index decreased 3.8% compared with the previous week and was 4.5% higher than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 0.7%. The four week moving average is down 1.5% for the seasonally adjusted Purchase Index, while this average is up 1.5% for the Refinance Index. The refinance share of mortgage activity increased to 69.5% of total applications from 69.2% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.8% from 5.9% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.46% from 4.57%, with points increasing to 1.19 from 0.91 (including the origination fee) for 80% loans. This is the lowest 30-year rate recorded in the survey since the middle of November 2010. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.64% from 3.70%, with points increasing to 1.11 from 1.05 (including the origination fee) for 80% loans. This is the lowest 15-year rate recorded in the survey since the beginning of November 2010.
The DJIA opened +40 at 9:30, the 10 yr note -9/32 at 3.07% +3 bp and mortgage prices -3/32 (.09 bp) frm yesterday’s close. Stock indexes have rallied for the past couple of days and interest rates have increased; all about the belief that the Greek bailout would be completed, now that the vote passed it may be a buy-the-rumor-sell the fact trade today in both the stock and bond markets.
The NAR reported May pending home sales at 10:00; expected up 3.5% jumped 8.2% frm April. Yr/yr +13.4%. A better rep[ort than was thought. There was no initial reaction to the report. At 10:00 the DJIA has turned lower.
Have Rates Bottomed Out?
Stronger than expected economic data pushed mortgage rates a little higher again this week. Following a string of weekly drops since the middle of June, mortgage rates have now risen for two straight weeks.
Over the summer, mortgage rates have fallen substantially. Weaker than expected economic reports and the debt crisis in smaller European countries caused investors to reduce their forecasts for economic growth and produced a flight to the relative safety of government guaranteed bonds, resulting in the lowest mortgage rates in decades. Now, however, some investors are asking whether they can fall further. Weaker than average economic growth, low inflation, and an “unusually uncertain” economic outlook still make the current environment supportive of low mortgage rates, but some investors feel that these factors have been fully “priced in.” These investors feel that economic growth must falter significantly for mortgage rates to drop much from here.
Also contributing to the fall in rates was the possibility that the government would take action which would push mortgage rates lower. The political climate has turned less favorable for this, though. Growing opposition to fiscal spending of any type has reduced the chances for additional government support for the housing market and mortgage rates.
The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales, an important indicator of economic growth, will be released on Tuesday. Retail Sales account for about 70% of economic activity. Industrial Production, another important indicator of economic growth, is scheduled for Wednesday. Empire State, Import Prices, Consumer Sentiment and Philly Fed will round out the week.
Weekly Update
Why are so many people listing their houses now?
Once the tax credit expired (new contracts had to signed by April 30th) everyone expected that listings would go down. But they haven’t…they have gone up. With all of the negative media attention on housing it would be easy to consider that it is because the sellers are distressed in some way. Maybe they lost their job or they are trying to sell the home before it goes into foreclosure.
But here is the real reason why listings are up: Interest rates are at an all-time low. Despite the constant bombardment of negative media coverage, the vast majority of existing homeowners are very credit worthy, live within their means and have stable income. Experienced homeowners have seen interest rates in the 5′s, 6′s, and 7′s in the last several years. And those that have owned homes for longer have seen double-digit interest rates. So, they know that when interest rates are at an all time low – it is time to make a move.
The idea is that if they were ever going to move to a different school district, move up or down in size, etc. now is the time to do it. Sure, they might get a little less for their house this year compared to what they might sell it for a couple of years down the road but that is more than offset by the huge savings in mortgage and interest payments.
This means that homebuyers also have attractive interest rates which is another good time to sell, because more people buy when interest rates are low. Buyers are a little slower to “pull the trigger” on a sales contract because there is moderate amount of inventory around. But many of these potential homebuyers already missed out on the tax credit window because they thought the government would keep extending it or maybe they just weren’t ready to enter the market yet. Regardless that window of opportunity has shut. Don’t miss this even bigger window of opportunity!
Mortgage rates can make a right turn at any second. Mortgage rates are not low because of anything that the Federal Reserve, Treasury, or Obama administration is currently doing. Mortgage rates are low because of global fear about the economy and financial system. This causes banks and investors to hoard their cash and park it into nice, safe and boring mortgage backed securities. You earn a very low interest rate in return for safety. But the financial markets and the global economy will turn around, and when it does it will move mortgage rates up with it.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +19 basis points last week which caused 30 year fixed rates to decrease for both government and conventional loans. Rate declined on fears of a U.S. double-dip recession. Economic concerns help to push investors towards purchasing MBS as a way to earn low yields in exchange for safety that you cannot find in the stock markets.
What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises:
| Date | ET | Release | For |
| 13-Jul | 8:30 | Trade Balance | May |
| 13-Jul | 14:00 | Treasury Budget | Jun |
| 14-Jul | 8:30 | Retail Sales | Jun |
| 14-Jul | 8:30 | Retail Sales ex-auto | Jun |
| 14-Jul | 8:30 | Export Prices ex-ag. | Jun |
| 14-Jul | 8:30 | Import Prices ex-oil | Jun |
| 14-Jul | 10:00 | Business Inventories | May |
| 14-Jul | 10:30 | Crude Inventories | 10-Jul |
| 14-Jul | 14:00 | Minutes of FOMC Meeting | |
| 15-Jul | 8:30 | Initial Claims | 10-Jul |
| 15-Jul | 8:30 | Continuing Claims | 3-Jul |
| 15-Jul | 8:30 | PPI | Jun |
| 15-Jul | 8:30 | Core PPI | Jun |
| 15-Jul | 8:30 | NY Fed – Empire Manufacturing Index | July |
| 15-Jul | 9:15 | Industrial Production | Jun |
| 15-Jul | 9:15 | Capacity Utilization | Jun |
| 15-Jul | 10:00 | Philadelphia Fed | Jul |
| 16-Jul | 8:30 | Core CPI | Jun |
| 16-Jul | 8:30 | CPI | Jun |
| 16-Jul | 9:00 | Net Long-Term TIC Flows | Apr |
| 16-Jul | 9:55 | Mich Sentiment | Jul |
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.
The Last Act of Definance!
I guess everyon has there own way of dealing with the current state of the economy and the prospect of losing their home. This man from Moscow, Ohio had a unique solution:
Did you know:
- The average home in the US has appreciated 1.7% (aggregate, not per year) over the last 5 years! Wyoming fared the best by gaining 26.6% on average and Reno fared the worst by losing 40.4% in value overall.
- The number of banks on the Fed;s problem list ended ’09 at a total of 702, up from 252 at the end of ’08.
- One part of the economy grew in 2009, Americans spent an average of $29 million PER DAY on movie tickets in 2009.
Mortgage rates are steady today on what could prove to be a voltile week. Tune in throught the weeks for updates!